MBA 620 STUDY GUIDE 2026 QUESTIONS AND SOLUTIONS
RATED A+
✔✔Which of the following budgets needs to be established first in the budgeting
process?
a. The production budget
b. The cash budget
c. The budgeted income statement
d. The sales budget - ✔✔d
✔✔A benefit of the participative approach to budgeting (relative to the top-down
approach) is:
a. In participative budgeting, lower level management has less input on the budget.
b. Participative budgeting is quicker and easier to administer.
c. In participative budgeting, outside community members have more input on the
budget.
d. Participative budgeting increases managers' buy-in and motivation to achieve budget
goals. - ✔✔d
✔✔What is a flexible budget?
a. All the other answers
b. The master budget adjusted to the actual level of sales.
c. The budget most appropriate for use in evaluating performance of production
supervisors.
d. The budget used to calculate production variances (price and quantity variances). -
✔✔a
✔✔In a variance analysis, the 'standard quantity' or direct materials is:
a. The quantity of materials one would expect (based on the standards) to be used for
the actual level of sales.
b. The quantity of materials actually used in production.
c. The quantity of materials used to create the master budget (based on the expected
sales).
d. Established based on ideal standards, including no allowance for waste or spoilage. -
✔✔a
✔✔Which of the following is the most likely explanation for an unfavorable direct
materials quantity variance?
a. They used higher quality direct materials, which reduced waste (scrap).
b. The new purchasing agent was not as effective in negotiating low prices.
, c. Lack of training meant that employees made more mistakes than expected.
d. The government levied new tariffs on the materials purchased. - ✔✔c
✔✔Potential advantages of decentralizing include: - ✔✔increased expertise, quicker
decisions, focus corporate management, motivate and develop
✔✔Potential disadvantage of decentralizing include: - ✔✔duplication of services,
conflict of interest, loss of control
✔✔To evaluate performance, organizations often divide operations into segments.
Segments responsible for revenues, costs, and investments; can be used based on
such attributes such as sales regions, product lines, or services offered -
✔✔responsibility centers
✔✔An organizational segment that is responsible for costs, but not revenue or
investments in assets (e.g., accounting, marketing, computer support, human
resources) - ✔✔cost center
✔✔An organizational segment that is responsible for costs and revenues (and
therefore, profit), but not investments in assets (e.g., retail stores Macy's Kmart;
individual fast-food restaurant in a a large chain McDonald's KFC) - ✔✔profit center
✔✔An organizational segment that is responsible for costs, revenues, and investments
in assets (e.g., Chevrolet division of GM, printer division of Hewlett, a theme park) -
✔✔investment center
✔✔Operating income/average operating costs - ✔✔return on investment (ROI)
✔✔Operating income above/below the cost of capital on those assets - ✔✔residual
income
✔✔Residual income > 0 is - ✔✔favorable
✔✔Similar to RI, but adjustments are made to the accounting measures:
- operating profit is AFTER TAX
- corrects for potential distortions in economic income created by U.S. GAAP
Also removes managerial conflicts of interest to reject favorable investments -
✔✔economic value added (EVA)
✔✔The internal value assigned to a product or service that one division provides to
another; objective is to transmit financial data between departments or divisions of a
company - ✔✔transfer pricing
RATED A+
✔✔Which of the following budgets needs to be established first in the budgeting
process?
a. The production budget
b. The cash budget
c. The budgeted income statement
d. The sales budget - ✔✔d
✔✔A benefit of the participative approach to budgeting (relative to the top-down
approach) is:
a. In participative budgeting, lower level management has less input on the budget.
b. Participative budgeting is quicker and easier to administer.
c. In participative budgeting, outside community members have more input on the
budget.
d. Participative budgeting increases managers' buy-in and motivation to achieve budget
goals. - ✔✔d
✔✔What is a flexible budget?
a. All the other answers
b. The master budget adjusted to the actual level of sales.
c. The budget most appropriate for use in evaluating performance of production
supervisors.
d. The budget used to calculate production variances (price and quantity variances). -
✔✔a
✔✔In a variance analysis, the 'standard quantity' or direct materials is:
a. The quantity of materials one would expect (based on the standards) to be used for
the actual level of sales.
b. The quantity of materials actually used in production.
c. The quantity of materials used to create the master budget (based on the expected
sales).
d. Established based on ideal standards, including no allowance for waste or spoilage. -
✔✔a
✔✔Which of the following is the most likely explanation for an unfavorable direct
materials quantity variance?
a. They used higher quality direct materials, which reduced waste (scrap).
b. The new purchasing agent was not as effective in negotiating low prices.
, c. Lack of training meant that employees made more mistakes than expected.
d. The government levied new tariffs on the materials purchased. - ✔✔c
✔✔Potential advantages of decentralizing include: - ✔✔increased expertise, quicker
decisions, focus corporate management, motivate and develop
✔✔Potential disadvantage of decentralizing include: - ✔✔duplication of services,
conflict of interest, loss of control
✔✔To evaluate performance, organizations often divide operations into segments.
Segments responsible for revenues, costs, and investments; can be used based on
such attributes such as sales regions, product lines, or services offered -
✔✔responsibility centers
✔✔An organizational segment that is responsible for costs, but not revenue or
investments in assets (e.g., accounting, marketing, computer support, human
resources) - ✔✔cost center
✔✔An organizational segment that is responsible for costs and revenues (and
therefore, profit), but not investments in assets (e.g., retail stores Macy's Kmart;
individual fast-food restaurant in a a large chain McDonald's KFC) - ✔✔profit center
✔✔An organizational segment that is responsible for costs, revenues, and investments
in assets (e.g., Chevrolet division of GM, printer division of Hewlett, a theme park) -
✔✔investment center
✔✔Operating income/average operating costs - ✔✔return on investment (ROI)
✔✔Operating income above/below the cost of capital on those assets - ✔✔residual
income
✔✔Residual income > 0 is - ✔✔favorable
✔✔Similar to RI, but adjustments are made to the accounting measures:
- operating profit is AFTER TAX
- corrects for potential distortions in economic income created by U.S. GAAP
Also removes managerial conflicts of interest to reject favorable investments -
✔✔economic value added (EVA)
✔✔The internal value assigned to a product or service that one division provides to
another; objective is to transmit financial data between departments or divisions of a
company - ✔✔transfer pricing
